Advice on voluntary surrender of home to lender
How much more damage could I do if I just voluntarily surrender my house back to the lender?
I have a dismissed bankruptcy scheduled to fall off my credit in 2010. My house was included in the original bankruptcy as well as an automobile. Once the bankruptcy was dismissed I reached an agreement with the mortgage company to keep the house. However, I had incurred substantial fee's which I had to pay before they would reinstate the loan bringing my home loan basically back to where I started. The house isn't in the greatest neighborhood and I can't qualify for another mortgage, but i really want to move. My credit is horrible right now (under 500) and doesn't seem to be able to get any lower. How much more damage could I do if I voluntarily surrender the house back? It seems like surrendering the house would actually improve my score because my debt would be reduced. Any advice?
By
Daniel Cohen
The voluntary surrender of a home in the manner you describe is often referred to as a "deed in lieu of foreclosure" in the mortgage industry. In this procedure, a borrower negotiates with the lender to turn over the deed to the lender in order to avoid formal foreclosure proceedings in the court system. I will explain more about voluntary surrender of a home in just a moment.
I generally recommend negotiating a deed in lieu agreement when a homeowner can no longer afford his mortgage payments, has explored all other options to save his home, and when foreclosure is imminent.
It sounds like you are able to make your monthly mortgage payments, but that you would like to rid yourself of the home so you can move. Before you consider surrendering the property to your mortgage lender, you should do everything in your power to sell the home. If you can find a buyer, you should be able to rid yourself of the home without the credit damage caused by a foreclosure or a deed in lieu. For further information about foreclosure, you should review the foreclosure information from the Avoiding Foreclosure Web page.
Unfortunately, in the current housing market, many homeowners find themselves owing more on their mortgages than their homes are worth, a situation which the mortgage industry refers to as being "upside down" on a mortgage. Even if you cannot find a buyer willing to pay enough for the home to pay off what you currently owe, you still may be able to sell the property for less than the mortgage balance, though you will need to negotiate an agreement with your lender to accept less than the balance of the note to pay off the mortgage.
Selling a home for less than the balance owed on the mortgage is often called a "short sale." Such transfers must be approved by the lender prior to the sale. Lenders that agree to short sales will frequently forgive any balance remaining on the note after the sale proceeds are applied, though they usually require borrowers to provide documentation of financial hardship, such as job loss or unexpected illness, before they will approve a short sale.
Surrendering your home to your mortgage lender through a deed in lieu of foreclosure agreement will likely have a strongly negative impact on your credit rating and your ability to obtain a new mortgage. While I understand that your credit score is already quite low, it is possible that a voluntary surrender may drive your score even lower. In addition, this derogatory mark on your credit will likely appear on your credit reports for seven years, meaning that this "foreclosure" could damage you credit rating for much longer than your dismissed bankruptcy.
Recommendation
Explore all options available to you to avoid voluntary surrender or foreclosure of your home, as losing your home will likely hurt you financially and negatively impact your credit rating for many years. These credit problems could prevent you from qualifying for a mortgage for a new home, cause you problems leasing an apartment, and force you to pay significantly higher interest rates for any credit you are able to obtain, which could cost you thousands of dollars in interest charges.
To learn more about the foreclosure process, and possible ways to prevent foreclosure, I encourage you to visit the Bills.com Foreclosure page. See also Deed In Lieu Of Foreclosure vs. Short Sale and Home Affordable Foreclosure Alternatives Program.
I hope this information helps you Find. Learn & Save.
Best,
Bill
Just like many others on this site, I took the cash for keys options too. But here is a little history first: I was under a forbearance payment plan and on the last month my home was foreclosed on. (I still had one more month and I made all my payments.) My contacts with Citibank, of course, went dark. I took the CFK. Six or 7 months later I received a rescission letter. After trying to come to an agreements with them, I would not accept their offer. I would still owe them more by taking it back. I now have attorneys working on my case. We did the meditation and I have given a deposition.
Here is my question: We have been going back and forth for 2 years now, and the main concern is the cash for keys document I signed. Have there been any other cases where the ruling was in favor of the home owner? Or, does the CFK void any claims against Citibank?
This is a question best answered by your lawyers, who will go through a research process called Shepardizing to learn how cases involving rescinding a mortgage foreclosure were decided in your state. Old-school lawyers will thumb through copies of Shepard's Citations to research a case, and lawyers who've received training in LexisNexis and WestLaw will use online databases to research these cases.
The cash-for-keys contract terms may be the essential issue in your case. However, it would be inappropriate for anyone like me who has not read this contract to say more. Please let us know how you resolve your case.